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01. 05. 2018

Net neutrality rollback: Will it block your digital bank too?

The rollback of net neutrality rules could hurt competition in digital banking.

December 14, 2017 will probably go down as one of the biggest turning points in the history of the internet. How come? That’s the day when U.S. regulator Federal Communications Commission (FCC) voted to scrap net neutrality rules, introduced in 2015. Although the changes are not yet voted into law, many warn that this is the end of the internet as we know it.

But what’s net neutrality all about? Basically, it means that internet service providers (ISPs) are required to treat all traffic on the internet equally, guaranteeing the exact same prices, access and speed for all. In other words, ISPs cannot block specific websites, provide slower or faster internet to some, or prioritize partners’ content for an extra fee.

As Terri Friedline, Assistant Professor of Social Welfare at the University of Kansas, puts it, net neutrality means that the internet is treated like a public service or a public good. However, rolling back net neutrality regulations will turn the internet into a mere product. And ISPs can freely ignore the current rules that ban blocking, throttling and paid prioritization.

Will small players get hurt?

If net neutrality becomes a thing of the past, it will hit small businesses the hardest. Some experts believe they will face higher fees for fast internet, which is key when competing with bigger rivals. What’s more, they might get throttled just because a competitor pays more. On top of all this, the new regulations can actually cost them customers, who decide to go for other players with a faster or cheaper connection to their website or online services.

Naturally, the FCC and big U.S. internet providers were quick to dismiss these fears. The FCC claimed that the new rules will protect consumers “at far less cost to investment than the prior rigid and wide-ranging utility rules”. Comcast, the largest U.S. cable firm, promised that it would not block or restrict access to websites and had no plans to create internet fast lanes with paid prioritization agreements. This was echoed by AT&T, the biggest U.S. telecom company, which pledged that “the internet will continue to work tomorrow just as it always has”.

But the Financial Times has found something alarming. It looks like Comcast has refused to rule out changes in their policy on paid prioritization in the future. Clearly, this stands in stark contrast to their promises never to block or throttle traffic. According to FT, paid prioritization could especially hurt disruptive start-ups who can’t afford higher tolls. And this can also become a huge worry for fintechs and challenger banks.

Internet fast lanes in digital banking?

Overturning current net neutrality regulations would have significant effects on financial services and digital banking, most experts agree. If ISPs actually begin offering faster service to customers who are willing to pay extra, fintech firms will find themselves in a difficult position. And when big budgets win over good ideas, it will also hurt innovation. Established financial institutions might have the funds to foot the bill of the fast lane. Smaller banks? Not so much. And slower connections can mean a huge blow for the overall development of digital banking services.

There’s more. Current rules don’t let ISPs discriminate against competing services but this can all change, too. Internet providers with their own payment service or app can speed up that service and throttle competitors. Or in another scenario, they can team up with technology giants, like Amazon or Facebook, to include their financial services in their pre-packaged bundles of services. Fintechs and smaller banks, however, hardly have the market power to negotiate similar deals.

Net neutrality rollback: more power to technology giants

Of course, no one knows if any of these scenarios will become the new reality. But there are already examples of how they can play out in practice. In Sweden, local telecom firm Telia offers unlimited mobile net access to Facebook, Instagram and Spotify. Seems fair, doesn’t it? But once customer reach their monthly limit on mobile net, Telia restricts all the apps, except for Facebook, Instagram and Spotify, which come with unlimited access. Swedish regulators have claimed that this arrangement is against net neutrality rules and the issue is now at court. According to the New York Times, deals like this might just offer a sneak peek into what the future holds for the U.S.

And what will all this bring to customers? The picture is not rosy on their side, either. For instance, it might become harder for lower-income customers to use digital financial services “if their end of the market is differentiated from the premium end”, says Accion’s Center for Financial Inclusion. “Reaching customers would become more expensive and difficult for fintech startups and small financial institutions aiming at a mass market if the ISPs shut both companies and customers out of the premium internet,” experts warn.

In the worst-case scenario, tech giants will just become even more powerful. They already have the data to better understand customers’ needs. But soon they might be the only ones who can afford to access these customers. The effect of the net neutrality debate on financial inclusion “may get lost in the more prominent debates and the titanic struggles for influence among powerful companies”.